PLUM CREEK TIMBER CO L P, 10-K, 1994-03-14

PLUM CREEK TIMBER CO L P
10-K, 1994-03-14
SAWMILLS & PLANTING MILLS, GENERAL

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1993

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10239

PLUM CREEK TIMBER COMPANY, L.P.
(Exact name of registrant as specified in its charter)

999 Third Avenue, Seattle, Washington 98104-4096
Telephone: (206) 467-3600

Organized in the State of Delaware I.R.S. Employer
Identification No.
91-1443693

Securities registered pursuant to Section 12(b) of the Act:
Depositary Units, Representing Limited Partner Interests

The above securities are registered on the New York Stock Exchange.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]

DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: None.

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PLUM CREEK TIMBER COMPANY, L.P.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM NO. CAPTION PAGE
- -------- ------- ----
PART I
------
<S> <C> <C>
1. & 2. Business and Properties 3
Segment Information 3
Resources Segment 3
Manufacturing Segment 6
Federal and State Regulations 8
Income Tax Considerations 11
Encumbrances 12
Competition 13
Employees 13

3. Legal Proceedings 14

4. Submission of Matters to a Vote of Security Holders 14

PART II
-------

5. Market for the Registrant's Common Equity
and Related Unitholder Matters 15

6. Selected Financial Data 16

7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17

8. Financial Statements and Supplementary 24
Financial Information

9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 42

PART III
--------

10. & 11. Directors and Executive Officers of the Registrant
and Executive Compensation 42

12. Security Ownership of Certain Beneficial Owners
and Management 42

13. Certain Relationships and Related Transactions 42
</TABLE>

1
<PAGE> 3
<TABLE>
<S> <C> <C>
PART IV
-------

14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 42
</TABLE>

2
<PAGE> 4
PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

GENERAL

Plum Creek Timber Company, L.P. (the "Partnership"), a Delaware
limited partnership and its subsidiaries, Plum Creek Manufacturing, L.P.
("Manufacturing"), and Plum Creek Marketing, Inc. ("Marketing"), own, manage,
and operate 2.0 million acres of timberland and nine wood products conversion
facilities in Montana, Washington and Idaho. The Partnership owns 98 percent
of Manufacturing, and 96 percent of Marketing. Plum Creek Management Company,
L.P. (the "General Partner"), manages the businesses of the Partnership,
Manufacturing and Marketing and owns the remaining 2 percent and 4 percent of
Manufacturing and Marketing, respectively. As used herein, "Company" refers to
the combined entities of the Partnership, Manufacturing and Marketing.

SEGMENT INFORMATION

As used herein, "Resources Segment" refer to the combined timber and
land management business of the Partnership. Manufacturing and "Manufacturing
Segment" refers to the combined business of Manufacturing and Marketing.
Certain financial information for each business segment is included in Note 11
of Notes to Combined Financial Statements.

RESOURCES SEGMENT

GENERAL. The Resources Segment consists of approximately 2.0 million
acres of timberland in the Pacific Northwest (the "Timberlands"). The
Timberlands are geographically segregated into two regions, the Cascade Region
in western Washington, and the Rocky Mountain Region in western Montana,
northern Idaho and eastern Washington. At December 31, 1993, the 2.0 million
acres of Timberland contained an estimated timber inventory of 10.5 billion
board feet ("BBF") of standing timber of which 8.1 BBF and 2.4 BBF were located
in the Rocky Mountain and Cascade regions, respectively.

The Resources Segment grows and harvests timber for sale in export and
domestic markets and sells land on an opportunistic basis, which is designated
as having a higher and better use than for forest management.

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The following summarizes the major components of the Resources
Segment's operating income:

<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Export Logs $41,448 $24,074 $16,549
Domestic Logs 85,594 42,781 31,163
Land Sales 7,691 20,306 10,080
</TABLE>

Operating income from export and domestic log sales increased by 72%
and 100%, respectively, from 1992 primarily due to higher prices caused by
timber supply constraints as well as increased wood product demand. Land sales
in 1992 included the strategic sale of the Company's 164,000 acre Gallatin Unit
located in southwestern Montana.

CASCADE REGION. The Cascade Region consists of approximately 330,000
acres of timberland. Approximately 49% of the total timber harvest in the
Cascade Region (compared to 40% and 43% in 1992 and 1991, respectively) was
sold for export to Pacific Rim countries, principally Japan. Logs not sold for
export were primarily sold to domestic mills owned by third parties. Logs sold
for export are generally of higher quality than logs sold into the domestic
market. Sales of export logs increased as a relative percentage of total sales
in the Cascade Region primarily due to the continuing log shortage which has
caused export customers to compete for logs traditionally sold to the domestic
market.

ROCKY MOUNTAIN REGION. The Rocky Mountain Region consists of
approximately 1,709,000 acres of timberland. During 1993, 59% of the total
timber harvest in the Rocky Mountain Region was sold to the Manufacturing
Segment (compared to 61% and 60% in 1992 and 1991, respectively), with the
remainder sold to third-party domestic mills.

On November 1, 1993, the Partnership purchased approximately 865,000
acres of timberland and other timber related assets (the "Montana Timberland
Acquisition") from Champion International Corporation for approximately $260
million. These timberlands are located in western Montana in close proximity
to existing Company assets. Management believes the Montana Timberland
Acquisition represented a strategic and financially attractive opportunity as
well as provides operating flexibility by allowing Manufacturing to be more
self-sufficient from a raw material standpoint.

Simultaneous to the Montana Timberland Acquisition, the Partnership
entered into a log sourcing agreement with Stimson Timber Company ("Stimson")
to supply Stimson's Montana mills with 950 million board feet ("MMBF") of logs,
at estimated market prices, over a ten year period ending in 2003. At December
31, 1993, the Partnership had a remaining commitment of approximately 926 MMBF.

TIMBER MANAGEMENT STRATEGY. The Partnership's resource operations
involve timber management and harvesting operations, which include road
construction and reforestation, as

<PAGE> 6
well as wildlife and watershed management. These activities are based on data
concerning tree species, site productivity indices as to the type and number of
trees by size and age classification, classification of soils, stocking per
acre, and information on forest management costs. From this data, coupled with
current economic and market conditions, the Partnership develops its annual
harvesting plan based upon silvicultural considerations, balancing ecological
demands of the forest with a view toward maximizing the value of its timber and
timberland assets.

The Partnership employs a number of traditional and newly developed
harvesting techniques on its lands based on site specific characteristics and
other considerations. During 1993, the Partnership practiced "Environmental
Forestry" on 100% of its Timberlands. Environmental Forestry attempts to
better protect and maintain the ecosystem while providing for a reasonable
harvest. As a part of this, the Partnership is experimenting with "New
Forestry", a technique which prescribes retention of a mix of green and dead
trees at the harvest site, including some large trees, snags and downed logs to
enrich and protect the soil for successive generations of trees, and to provide
habitat for a variety of wildlife species. The Partnership intends to continue
to experiment with, and expand as appropriate, the "New Forestry" component of
Environmental Forestry.

The Partnership's forestry operations encompass a variety of climatic
conditions, topographic features and vegetation types. Particular forestry
practices vary by geographic region and depend upon factors such as soil
productivity, tree size, age and stocking. For instance, harvesting on steep
slopes or during wet seasons is often done using cable yarding systems to
prevent damage to soils. Harvesting methods include a variety of partial
removals such as seed trees, shelterwood, overstory removal and selective
harvests as well as sometimes clear-cutting. The method chosen depends on tree
species, terrain, visual concerns and regeneration objectives. Forest stands
may be thinned periodically to improve growth and stand quality until they are
harvested. Environmental factors, such as length of growing season, also
affect the period of time between harvest. This period, called rotation, can
be as short as 40 years in the Cascade Region and as long as 80 years in the
Rocky Mountain Region.

Different areas within a forest may be planted or seeded in successive
years to provide a variety of age classes within the forest. A variety of age
classes will tend to provide a regular source of cash flow as the various
timber stands within the forest reach harvestable age. The timing of harvests
of merchantable timber depends in part on maturity cycles and in part on
economic conditions. The Partnership will continue to develop its forest
management operations to take advantage of technological, biological and
genetic advances to improve timber yields to the greatest extent possible. The
Partnership's forestry practices now include thinning of some timber stands,
controlled burning, fertilization of timber plantations where cost effective,
disease and pest control and reforestation.

It is the Partnership's policy to promptly reforest every acre
harvested. Based on the geographic and climatic conditions of the harvest
site, harvested areas may be regenerated naturally by leaving mature trees to
reseed the area. Natural regeneration methods are widely used in the Rocky
Mountain Region. During 1993, the Partnership planted over 3 million
seedlings, mostly in the Cascade Region where about 80% of the reforestation is
done by

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planting. Seedlings, which are from one to three years old when planted, are
obtained partially from Plum Creek's nursery in Pablo, Montana.

The Partnership manages its forest inventory by the use of a
computerized timber inventory system. The timber inventory is calculated using
statistical information obtained by physical measurements, site maps and
photo-types. In addition, the system incorporates estimates related to growth
which considers species, topographical information, soil types, and other
factors, as well as specifications on merchantability. In addition, during
1993, the Partnership began the implementation of a Geographical Information
System ("GIS") in the Cascade Region. A GIS system stores spatial and
attribute data for timberlands and provides a wide array of mapping and
analytical tools. The data base includes geographic information, species,
volume and diameter specifications on the site. A similar system was purchased
with the Montana Timberland Acquisition and will be implemented across the
entire Rocky Mountain Region beginning in 1994.

Forests are subject to a number of natural hazards, including damage
by fire, insects and diseases. Severe weather conditions and other natural
disasters can also reduce the productivity of forest lands, although damage
from natural causes is typically localized and would only affect a portion of
the Timberlands at any given time, and can interfere with the processing and
delivery of forest products. Nevertheless, such hazards are to a large extent
unpredictable and there can be no assurance that losses will be so limited.
The size, species, diversity and checker-board ownership of the Timberlands, as
well as the Partnership's forest management practices, should help to minimize
these risks. Consistent with the practices of other large timber companies, the
Partnership does not maintain insurance against loss to standing timber on the
Timberlands, but maintains insurance for loss of logs due to fire and other
occurrences following harvesting.

MANUFACTURING SEGMENT

GENERAL. The Manufacturing Segment consists of four lumber mills, two
plywood plants and a medium density fiberboard ("MDF") facility in western
Montana and a lumber mill and a wood chip plant in Washington, collectively
known as the "Conversion Facilities". The Conversion Facilities produce a wide
variety of lumber, plywood and MDF products which are sold to Marketing who
markets and sells the products. Marketing targets the products to retail home
centers and various specialty niche markets which are less cyclical than the
traditional housing related markets. In addition, in order to enhance customer
service and provide prompt deliveries, Marketing has established a network of
over 30 warehouses located strategically throughout the United States.

RAW MATERIALS. Manufacturing obtains the majority of its raw logs
from the Partnership's Timberlands of which 51%, 51%, and 59% was sourced from
the Resources Segment in 1993, 1992 and 1991, respectively. It is anticipated,
however, that 1994 log sourcing from the Resources Segment will increase to 65%
- - 70% as a result of the Montana Timberland Acquisition. The price of logs
obtained from the Partnership is determined quarterly based upon estimated
market prices and terms in effect at the time.

<PAGE> 8
Manufacturing has and will continue to purchase stumpage and logs from
external sources, which include the United States Forest Service ("USFS"),
Bureau of Indian Affairs ("BIA"), and state and private timberland owners. At
December 31, 1993 and 1992, Manufacturing had 146 MMBF and 95 MMBF,
respectively, of timber under contract from external sources which may be
harvested over the next three years. A major portion of Manufacturing's
externally sourced timber comes from the USFS. The USFS has a ten-year harvest
plan which is expected to provide for a 1994 harvest of 576 MMBF in the
geographic area of the Conversion Facilities. However, due in part to legal
challenges, the USFS will most likely be unable to sell all of that volume.
Manufacturing is permitted to bid on up to approximately fifty percent annually
of this USFS volume, with the remainder set aside for small businesses. In
addition, approximately 300 MMBF of timber has been and is expected to be made
available annually from other sources. The geographic area in which the
Conversion Facilities operate may expand or contract from year to year as the
cost of logs and value of manufactured products fluctuate. (For further
discussion of other timber supply issues see "Federal and State Regulations".)

PRODUCTS AND MARKETS

LUMBER. Manufacturing produces a diverse line of lumber products,
including boards and studs which are manufactured at two studmills and three
random-length lumber mills located in Montana and Washington. For the years
ended December 31, 1993, 1992 and 1991 these mills produced on a comparable
mill basis 352 MMBF, 355 MMBF, and 347 MMBF of lumber, respectively.

Manufacturing targets its lumber sales away from the more cyclical
housing construction markets and towards domestic lumber retailers, such as
retail home center chains, for use in repair and remodeling projects.
Value-added products such as consumer appearance boards, pull-to-length boards,
premium furring strips, premium studs and export products, aimed at retail and
other specialty markets, have made Manufacturing less dependent on cyclical
markets. All of Manufacturing's lumber mills are also capable of making
products for export markets. In 1993, 60% of Manufacturing's lumber products
were sold into retail markets, 13% to stocking distributors, 20% to industrial
and remanufactured product markets and 7% to export markets. These amounts
compare to 61%, 15%, 16% and 8% for these same markets, respectively, in 1992.
The increase in the relative percentages sold to the industrial and
remanufactured product markets and an offsetting decrease to the stocking
distributors was the result of the Company's continued focus on the more
specialty and niche markets which are less reliant upon residential
construction.

PLYWOOD. Manufacturing produces high-grade plywood which is
primarily sold into specialized industrial markets. Plywood products are
manufactured at two plywood facilities located in Montana. For the years ended
December 31, 1993, 1992 and 1991 the plywood plants produced 289 million square
feet ("MMSF") (3/8" basis), 294 MMSF, and 279 MMSF of plywood, respectively.

During 1993 and 1992, 76% and 71%, respectively, of Manufacturing's
plywood products were sold in specialty industrial markets, including carpet
strip, recreational boat and recreational

<PAGE> 9
vehicle markets. The increase in sales to industrial markets was the result of
the Company's continued focus on specialty markets in an effort to be less
reliant upon the cyclicality of home construction markets. Manufacturing's
plywood products are generally of higher quality and value than commodity
construction grade products, which makes them more valuable in these specialty
niche markets.

MEDIUM DENSITY FIBERBOARD. Manufacturing produces MDF products which
are primarily sold to furniture manufacturers and commercial store fixture
producers. For the years ended December 31, 1993, 1992 and 1991 the plant
produced 106 MMSF (3/4" basis), 109 MMSF, and 103 MMSF of MDF, respectively.
The increased production volume in 1992 was due to the installation of a number
of capital projects. In addition, 1993 production was down slightly due to a
February fire at the plant which caused temporary production delays.

Manufacturing supplies high quality MDF to markets primarily in North
America and Pacific Rim countries. In 1993, Manufacturing sold approximately
46% of its MDF directly to domestic industrial manufacturers or fabricators,
32% to stocking distributors, 17% into overseas export markets, primarily
Pacific Rim countries, and 5% to retail and other markets. These amounts
compare to 45%, 29%, 21% and 5% to the same markets, respectively, in 1992.
The increase in the percentage of MDF sales to domestic markets and resulting
decrease of sales to overseas markets was the result of improvements in the
U.S. economy which boosted domestic demand for MDF products.

CHIPS. Manufacturing's lumber and plywood mills produce wood chips
as a by-product from the conversion of raw logs into finished products. These
wood chips are sold to regional paper and pulp mills as well as to the
Company's MDF facility. The Company's lumber and plywood facilities produced
257 thousand bone dry tons ("MBDT"), 269 MBDT and 252 MBDT of chips in 1993,
1992 and 1991, respectively. Residual wood chip sales volume was 4% lower in
1993 as compared to 1992 primarily due to the increased sales of other residual
wood products which had been previously chipped, but because of higher wood
product prices, these products are now economic to produce and sale.

Manufacturing also produces wood chips at its Cle Elum, Washington
chip plant. The chip plant produced 76 MBDT, 76 MBDT and 83 MBDT in 1993, 1992
and 1991, respectively.

FEDERAL AND STATE REGULATIONS

GENERAL. The activities of the Company are subject to various federal
and state environmental laws and regulations which impose limitations on the
discharge of pollutants into the air and water and which also establish
standards for the treatment, storage and disposal of solid and hazardous waste,
and govern the discharge of runoff stormwater and wastewater. The General
Partner believes that the Company is in substantial compliance with such laws
and regulations. (See Item 3. Legal Proceedings.)

<PAGE> 10
The activities of the Company are also subject to federal and state
regulations regarding natural resources and forestry operations and the
requirements of the federal Occupational Safety and Health Act and comparable
state statutes relating to the health and safety of the Company's employees.
The General Partner believes that the Company is in substantial compliance with
such laws and regulations.

The Company conducts operations in or near significant environmentally
sensitive areas which include the habitats of numerous species including a
number of threatened or endangered species. As a result, the Company's
activities in such areas may be subject to restrictions relating to the
harvesting of timber and the construction of roads.

REGULATION. In July 1990, the United States Fish and Wildlife Service
("USFWS") listed the Northern Spotted Owl ("Owl") as a threatened species
throughout its range in Washington, Oregon and California under the federal
Endangered Species Act ("ESA").

At the time of the regulation, the USFWS issued suggested guidelines
to be followed by landowners in order to comply with the ESA's prohibition
against harming or harassing Owls. These guidelines were rescinded in response
to an industry lawsuit, but continue to serve as the basis for USFWS
enforcement of the ESA. The guidelines impose several requirements, including
the restriction and preclusion of harvest activities in areas within a 1.8 mile
radius (approximately 6,600 acres) of known nest sites or activity centers for
pairs of Owls or territorial single Owls ("Activity Areas"). Under the
guidelines, at least 40% in the aggregate of the area within Activity Areas has
to be maintained as suitable Owl habitat. In addition, 70 acres immediately
around nest sites has to be preserved. Under the guidelines, approximately
115,000 acres of the 330,000 acres in the Partnership's Cascade region lie
within Activity Areas.

The USFWS announced on December 29, 1993, that it is proposing to
draft a special rule ("Special Rule") to redefine private landowner obligations
under the ESA. In its description of the proposed Special Rule, the USFWS
indicated that the guidelines would serve as the basis for regulation in areas
of special concern ("ASC") for the Owl. Outside of the ASCs, only 70 acres
around nest sites would be restricted. A substantial majority of the
Partnership's Timberlands that contain occupied Owl habitat lie within ASCs.
Accordingly, the proposed Special Rule is not likely to materially alter the
current level of regulation on the Partnership's activities due to the Owl.

All forest practice applications ("FPA's") within Activity Areas must
also comply with the Washington State Environmental Policy Act ("SEPA") and
Forest Practices Act. In June 1992, the Washington State Forest Practices
Board (the "Board") adopted regulations which provide that SEPA will apply to
FPA's for activities on the 500 acres of habitat surrounding nest sites or
activity centers. By its terms, the rule was to have sunseted in March 1994.
In February 1994, the Board, however, extended the rule for an additional four
months.

Compliance with the ESA and SEPA is causing delays and in some cases
modification of Partnership FPA's in Owl Activity Areas and may cause denials
of future Partnership FPA's.

<PAGE> 11
The ESA also prohibits the federal government from causing jeopardy to
the Owl or destroying or adversely modifying its designated critical habitat.
Private landowners are potentially affected by this restriction if a private
activity requires federal action, such as the granting of access or federal
funding. Where there is such a federal connection, the federal agency involved
must consult with the USFWS to determine that the proposed activity would not
cause jeopardy to the Owl or direct or indirect adverse modification of its
designated critical habitat, or if it would, then to propose, where possible,
alternatives or modifications to the proposed activity. The Partnership's
Timberlands are often intermingled with federal land in or near areas that
include the habitats of a number of threatened or endangered species such as
the Owl and the grizzly bear. Thus, access across federal lands to certain of
the Partnership's Timberlands in such areas has been and, is likely to continue
to be, delayed by the administrative process and legal challenges and may be
subjected to restriction under the ESA.

On June 9, 1992, the USFWS published its draft recovery plan (the
"Draft Plan") for the Owl. A recovery plan, once final is not legally binding,
but it may form the basis for future regulation. The Draft Plan recommends
that 7.5 million acres of federal land be set aside in designated conservation
areas ("DCA's") where timber harvesting and road building would be prohibited.
On July 16, 1993, the Clinton Administration proposed a new forest policy that
would provide for the conservation of the Owl and numerous other species. The
Clinton administration intends to implement its policies administratively.
However, the plan is likely to be subjected to legal challenges and thus, its
implementation remains uncertain.

The ultimate impact of the Owl listing on the Partnership will depend
on (i) the number of Activity Areas actually found on or near Partnership
Timberlands, (ii) the availability and amount of suitable habitat within
individual Activity Areas, (iii) the outcome of the Clinton Administration's
forest policy, including the proposed Special Rule, (iv) future regulations
and restrictions placed on private and public lands, (v) promulgation,
interpretation and application of Owl regulations by both the USFWS and the
Washington State Department of Natural Resources, (vi) the impact of reduced
harvests upon stumpage prices, and (vii) the outcome of litigation. Although
the continuing uncertainty surrounding efforts to conserve the Owl make it
difficult to assess the future impact of the Owl listing on the Partnership, at
this time, the General Partner does not believe that federal and state laws and
regulations related to the Owl will have a materially adverse effect on the
financial position of the Company or its results of operations. There can be
no assurances, however, that (i) future interpretation or administration of
current laws and regulations, (ii) changes in laws or regulations, (iii)
increases in the number of Owls on or near Partnership lands, or (iv) decreases
in suitable habitat adjacent to Partnership lands will not adversely affect the
operations or financial position of the Company.

The General Partner anticipates that increasingly strict laws and
regulations relating to the environment, natural resources, forestry
operations, and health and safety matters, as well as increased social concern
over environmental issues, may result in additional restrictions on the Company
causing increased costs, additional capital expenditures and reduced operating
flexibility.

<PAGE> 12
LEGISLATION RESTRICTING LOG EXPORTS. Federal legislation currently
prohibits the sale of unprocessed logs harvested from federal lands located in
the western half of the U.S. if such logs will be exported from the United
States by the purchaser thereof or if such logs will be used by the purchaser
thereof as a substitute for timber from private lands which is exported by such
purchaser. This prohibition does not impact the purchase of timber by the
Partnership from federal lands in the geographic area of the Conversion
Facilities. In addition, federal legislation prohibits the export of
unprocessed logs harvested from certain state lands. As a result, Washington
and Oregon currently prohibit the export of all logs harvested from state
lands. Proposals have also been made from time to time, but to date have been
unsuccessful, to either ban or tax the export of unprocessed logs harvested
from private lands.

INCOME TAX CONSIDERATIONS

PARTNERSHIP STATUS. The Partnership is not a taxable entity and incur
no federal income tax liability. Each partner is required to take into account
in computing his or her federal income tax liability, his or her allocable
share of income, gains, losses, deductions and credits of the Partnership,
regardless of whether cash distributions are made. Distributions by the
Partnership to a partner are generally not taxable unless the distribution is
in excess of the partner's adjusted basis in his or her partnership interest.

SECTION 754 ELECTION. The Partnership has made the election permitted
by Section 754 of the Internal Revenue Code (the "Code"). The election will
generally permit a purchaser of depositary units representing limited partner
interests ("Units") to adjust his or her share of the basis in the
Partnership's properties ("Inside Basis") pursuant to Section 743(b) of the
Code to fair market value (as reflected by his Unit price), as if he or she had
acquired a direct interest in the Partnership's assets. A Unitholder's
allocable share of Partnership income, gains, losses and deductions is
determined in accordance with the Unitholder's unique basis under this
election. In the case of the Partnership Units, the Section 743(b) adjustment
acts in concert with the Section 704(c) allocation (and curative allocations)
in providing the purchaser with a fair market value Inside Basis. Such
election is irrevocable and may not be changed without the consent of the
Internal Revenue Service ("IRS"). The Section 743(b) adjustment is attributed
solely to a purchaser of Units and is not added to the basis of the
Partnership's assets associated with all of the Unitholders.

FEDERAL INCOME TAXATION - GENERAL. Marketing, organized as a separate
corporation, reports all of its income, gains, losses, deductions and credits
arising from its operations on its own return and pays a corporate tax on any
resulting net income. Under current law, Marketing's net income is subject to
federal income tax at rates of up to 35%. Losses realized by Marketing do not
flow through to the Partnership, but are carried back and forward, within
certain limitations, to offset taxable income of Marketing in past or future
years. Distributions, if any, received by the Partnership through Marketing
generally would be characterized as either taxable dividends of current or
accumulated earnings and profits or in the absence of earnings and profits, as
a nontaxable return of capital (to the extent of the Partnership's tax basis in
Marketing's stock) or as taxable capital gain (after the Partnership's basis in
such stock is reduced to zero).

<PAGE> 13
PRIVATE LETTER RULING. A master limited partnership, under current
law, must derive 90% or more of its income from qualifying sources, which
include natural resource businesses. During 1990 and 1993, the Partnership
received favorable tax rulings from the IRS stating that income from
sawmilling, plywood and MDF operations constitutes qualifying income.

STATE TAX INFORMATION. The Partnership conducts operations in three
states, two of which (Idaho and Montana) have a state income tax. To simplify
the Unitholders' state filing requirements, the Partnership files composite
returns in each of those states and pays the state income tax due for
non-resident Unitholders. Marketing conducts operations in approximately 25
states for which it pays state corporate income taxes.

TAX-EXEMPT ENTITIES. Certain entities otherwise generally exempt from
federal income taxes (such as individual retirement accounts ("IRAs"), employee
benefit plans and other charitable or exempt organizations) may be subject to
federal income tax if their share of Unrelated Business Taxable Income ("UBTI")
exceeds $1,000. For 1993, all income derived from the Partnership is treated
as UBTI. For years after 1993, income will be classified as UBTI dependent
upon source. Most of the Partnership's income will continue to be classified
as UBTI. Regulated investment companies are required to derive 90% or more of
their gross income from qualified sources, such as interest or security trading
income; gross income from the Partnership is not qualifying income for purposes
of this test.

TIMBER INCOME. Section 631 provides special rules by which gains from
the sale of timber or cut logs, which would otherwise be taxable as ordinary
income, are treated in whole or in part as capital gains from the sale of
property used in a trade or business. The Partnership has elected to apply the
provisions of Section 631.

ENCUMBRANCES

Under the terms of the Senior Notes and the reducing revolving line of
credit used to finance the Montana Timberland Acquisition, the Partnership has
agreed not to pledge, assign or transfer the Timberlands, except under limited
circumstances. Under the terms of the First Mortgage Notes of Manufacturing,
the holders of these notes have a first mortgage lien on substantially all of
the Conversion Facilities. In addition, the Partnership guarantees the First
Mortgage Notes of Manufacturing. At December 31, 1993, the Partnership's and
Manufacturing's accounts receivable and inventories serve as collateral for any
borrowings made under their respective short-term bank revolving credit
facilities.

The Partnership's title to the Timberlands acquired during the
formation of the Company on June 8, 1989 includes the related hard rock mineral
interests. However, the Partnership did not obtain the hard rock mineral
interest to the 865,000 acres of timberland purchased in the Montana Timberland
Acquisition. In addition, the Partnership does not own oil and gas mineral
interests to any of its Timberlands. The title to the Timberlands is subject
to presently existing easements, rights of way, flowage and flooding rights,
servitudes, cemeteries, camping sites, hunting and other leases, licenses and
permits, none of which materially adversely affect the value of the Timberlands
or materially restrict the harvesting of timber or other operations of the
Partnership.

<PAGE> 14
COMPETITION

RESOURCES SEGMENT. In export log markets, the Partnership competes
with other U.S. companies, Chile, New Zealand, Russia, Canada and Scandinavia,
all of which have abundant timber resources.

In domestic log markets, the Partnership competes with numerous
private land and timber owners in the northwestern U.S. as well as with the
states of Idaho, Montana, Oregon and Washington. In addition, the Partnership
competes with the U.S. Government, principally the USFS, the Bureau of Land
Management and the BIA. Timber supplied from the U.S. Government, Washington
and Oregon land is restricted from export, and is sold solely into domestic
markets. (See Federal and State Regulations.)

Domestic wood and fiber consuming facilities tend to purchase raw
materials within relatively small geographic areas, generally within a 200 mile
radius, due to log transportation costs. Competitive factors within a market
area generally will include price, species and grade, proximity to wood
consuming facilities and ability to meet delivery requirements.

MANUFACTURING SEGMENT. Markets for forest products are highly
competitive in terms of price and quality. Manufacturing competes in domestic
lumber markets primarily with other U.S. and Canadian companies. Manufacturing
competes in the Japanese lumber market primarily with Japanese, Canadian,
Russian and Scandinavian companies. The domestic plywood market is
characterized by numerous large and small producers and is also subject to
competition from oriented strand board and waferboard, which are less
expensive, but generally lower quality substitutes.

Competition in the markets for commodity-grade lumber and plywood is
primarily based on pricing strategies, while sales in specialty niche markets
and retail markets are strongly influenced by product quality, customer
service, efficiency of distribution and the ability to supply products in the
future. The ability to provide companion products and a variety of substitute
products is also used as a marketing strategy for certain products. Fiberboard
producers typically compete on a global scale. Accordingly, sales are
generally determined by product quality and level of customized services the
producer can provide, rather than by geographic location.

EMPLOYEES

The Company currently has approximately 340 salaried and 1,360 hourly
employees and believes that its employee relations are good. The Company's
wage scale and benefits are generally competitive with other forest products
companies. The Company's employees are not unionized. The harvesting and
delivery of logs are conducted by independent contractors who are not employees
of the Company.

<PAGE> 15

ITEM 3. LEGAL PROCEEDINGS

On May 1, 1992, the Company received a Notice of Violation ("NOV")
from the Environmental Protection Agency ("EPA") under the Clean Air Act. The
NOV alleges that Plum Creek's Evergreen veneer dryers in Kalispell, Montana
were not in compliance with an air quality permit on January 15, 1992 when
visible emissions from the veneer dryers were observed by the EPA. These
dryers were also the subject of a suit filed by the Montana Air Quality Bureau
("MAQB") in March 1990. Prior to the January 15, 1992 alleged violation, the
Company entered into a Consent Decree with the MAQB. The Company installed
approximately $900,000 of emission control equipment on the dryers on April
14, 1992, in order to comply with the permit and all State and Federal visible
emission limits. Plum Creek will work with the EPA to provide information and
resolve issues arising under the NOV. The EPA has not notified the Company
what sanctions, if any, the EPA would seek as a result of the NOV.

There is no pending litigation, and to the knowledge of the General
Partner there is no threatened litigation, involving the Company which would
have a material adverse effect on the business, the financial position or
results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

<PAGE> 16
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED UNITHOLDER MATTERS

The Partnership's Units are traded principally on the New York Stock
Exchange. As of December 31, 1993, there were approximately 37,000 beneficial
owners of 40,608,300 outstanding Units.

Trading price data, as reported by the New York Stock Exchange, and
declared cash distribution information for 1993 and 1992 are as follows ($ per
Unit amounts have been restated for the December 6, 1993 three-for-one Unit
split):

<TABLE>
<CAPTION>
1993 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High $16-5/8 $17-7/8 $21-3/4 $26-3/4
Low 14-5/8 15-1/2 17-3/8 20-7/8
Cash Distribution per Unit $ 0.333 $ 0.333 $ 0.333 $ 0.38

1992 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ---- -------- -------- -------- --------

High $13-3/8 $13-1/4 $ 15 $ 15
Low 10-7/8 11-1/2 12-1/2 12-7/8
Cash Distribution per Unit $ 0.267 $ 0.30 $ 0.30 $ 0.30
</TABLE>

Cash distributions are paid from available cash as defined by the
Partnership's partnership agreement. It is the Company's intention to maintain
the distribution into the foreseeable future, however, there can be no
guarantee other than the General Partner's obligation to support quarterly
distributions at certain minimum levels, through June 1994. In addition, the
Company's debt agreements have certain restrictive covenants limiting the
amount of the cash distribution.

<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
June 8 Jan. 1
through through
Dec. 31, June 7,
1993(2) 1992(5) 1991(6) 1990 1989 1989
---------- --------- --------- --------- ------------ --------------
(Predecessor)
(1)
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD:
(IN MILLIONS, EXCEPT PER UNIT):
Revenues . . . . . . . . . . . . . . . $ 501.0 $ 439.9 $ 389.8 $ 372.8 $ 205.7 $ 143.9
Depreciation, Depletion and
Amortization . . . . . . . . . . . 38.8 39.0 43.0 44.9 25.7 4.7
Operating Income . . . . . . . . . . 126.6 97.8 55.7 52.4 31.4 37.9
Net Income . . . . . . . . . . . . . 91.4 64.2 18.7 22.2 14.4 24.4
Capital Expenditures (4) . . . . . . 284.6 25.6 11.4 20.8 18.7 11.8
Net Cash Provided by
Operations . . . . . . . . . . . . 115.3 78.0 62.1 52.8 27.3 20.0
Net Income per Unit (3) . . . . . . . 1.92 1.34 0.37 0.44 0.30
Cash Distributions Declared
per Unit (3) . . . . . . . . . . . 1.38 1.17 1.07 1.03 0.52

AT PERIOD END (IN MILLIONS):
Working Capital. . . . . . . . . . . 53.2 100.6 73.8 73.0 89.2 72.7
Total Assets. . . . . . . . . . . . 816.5 586.1 580.8 607.4 650.4 210.1
Total Debt . . . . . . . . . . . . . 569.9 318.5 325.0 325.0 325.0 2.1
Partners' Capital and Equity . . . . $ 192.6 $ 225.3 $ 211.7 $ 240.6 $ 281.0 $ 165.0

OPERATING DATA:
Fee Timber Harvested (MMBF). . . . . 458 469 563 503 377 220
Non-Fee Timber Harvested (MMBF). . . 77 117 76 102 83 33
Lumber Production (MMBF) . . . . . . 352 395 409 372 199 159
Plywood Production (MMSF)
(3/8" basis) . . . . . . . . . . . 289 294 279 268 149 115
MDF Production (MMSF)
(3/4" basis) . . . . . . . . . . . 106 109 103 97 47 35
</TABLE>

(1) "Predecessor" refers to the acquired business, on June 8, 1989, of Plum
Creek Timber Company, Inc., a former subsidiary of Burlington Resources Inc.,
the Company's former General Partner.

<PAGE> 18
(2) During 1993, the Company elected to change its method for valuing
inventories from average cost to the last-in, first-out ("LIFO") method. This
change in accounting lowered 1993 earnings by $8.0 million or $0.18 per Unit.
The cumulative effect of the accounting change and pro forma effects on prior
years' earnings have not been included because such effects are not reasonably
determinable. In addition, on August 30, 1993 the Partnership redeemed the
1.25 million (on a pre-Unit split basis) DPIs for $63.0 million.

(3) Per Unit amounts have been restated for the December 6, 1993 three-for-one
Unit split.

(4) Included in 1993 capital expenditures was $255.3 million paid for the
timberlands acquired as part of the Montana Timberland Acquisition.

(5) Included in 1992 results of operations was the sale of the 164,000 acre
Gallatin Unit, together with the Belgrade sawmill for $23 million plus the
value of inventory. The sale resulted in a net gain of $15.6 million.

(6) Effective January 1, 1991, the Company increased the estimated remaining
lives of its machinery and equipment. This change in accounting estimate
increased the Company's 1991 net income by $9.3 million or $0.21 per Unit.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

Plum Creek Timber Company, L.P. (the "Partnership"), a Delaware
limited partnership and its subsidiaries, Plum Creek Manufacturing, L.P.
("Manufacturing"), and Plum Creek Marketing, Inc., ("Marketing"), own, manage,
and operate 2.0 million acres of timberland and nine wood products conversion
facilities in Montana, Washington and Idaho. The Partnership owns 98 percent
of Manufacturing and 96 percent of Marketing. Plum Creek Management Company
L.P., (the "General Partner"), manages the businesses of the Partnership,
Manufacturing and Marketing and owns the remaining 2 percent and 4 percent of
Manufacturing and Marketing, respectively. As used herein, "Company" refers to
the combined entities of the Partnership, Manufacturing and Marketing.
"Resources Segment" refers to the combined timber and land management business
of the Partnership. "Manufacturing Segment" refers to the combined business of
Manufacturing and Marketing.

EVENTS AND TRENDS AFFECTING OPERATING RESULTS

MARKET FORCES. The demand for logs and manufactured wood products
depends upon international and domestic market conditions, the value of the
U.S. dollar in foreign exchange markets, competition and other factors. In
particular, the demand for logs, lumber and plywood is affected by residential
and industrial construction, and repair and remodel activity. These activities
are subject to fluctuations due to changes in economic conditions, tariffs,
interest rates,

<PAGE> 19
population growth and other economic, demographic and environmental factors.

SEASONALITY. Domestic log sales volumes are typically at their lowest
point in the second quarter of each year during spring break-up, when warming
weather thaws and softens roadbeds, restricting access to logging sites.
Revenues from export log sales are affected in part by variations in inventory
in the countries where such logs are sold as well as by weather conditions.
Winter logging activity in the Pacific Northwest takes place at lower
elevations, where predominantly lower quality and second growth logs are found,
affecting the volume of higher quality export logs sold during this time of the
year.

Demand for manufactured products is generally lower in the fall and
winter quarters when activity in the construction, industrial and repair and
remodeling markets are slower, and higher in the spring and summer quarters
when these markets are more active. Working capital varies with seasonal
fluctuations. Log inventories increase going into the winter season to prepare
for reduced harvest during spring break-up.

CURRENT MARKET CONDITIONS. Prices for both export and domestic logs
were stronger in 1993 than in 1992 primarily due to log shortages, resulting
from litigation and environmental restrictions as well as improved demand for
finished wood products. In addition, competition between and within the
Northwest export and domestic log markets continues to intensify for available
timber as buyers continue to compete for shrinking timber supplies.

Prices for lumber and plywood strengthened during 1993. Industry
composite indices for lumber and plywood commodity prices were 40% and 19%
higher in 1993 than 1992. The price improvement was primarily due to a
stronger domestic economy, lower interest rates resulting in improved wood
product demand as well as reduced timber supplies.

FINANCIAL CONDITION AND LIQUIDITY

Net cash provided by operating activities was $115.3 million, $78.0
million, and $62.1 million for 1993, 1992, and 1991, respectively. At December
31, 1993, the Company had $34.0 million of cash and cash equivalents.

The Partnership and Manufacturing have short-term revolving credit
agreements with a group of banks to borrow up to $15 million and $20 million,
respectively, for working capital purposes and standby letters of credit. As
of December 31, 1993, there were letters of credit issued in the amounts of
$2.6 million and $0.5 million for the Partnership and Manufacturing,
respectively. Manufacturing also has a $20 million revolving credit agreement
with the Partnership. At December 31, 1993 and 1992 there were no such
borrowings outstanding. Total borrowings, in the aggregate, by Manufacturing
under its revolving credit agreements cannot exceed $20 million.

<PAGE> 20
The Partnership and Manufacturing have a capital facility which
enables Manufacturing to borrow up to $20 million from the Partnership. There
were no such borrowings outstanding as of December 31, 1993 and 1992.

The Partnership entered into a reducing revolving line of credit
("Line of Credit") with a group of banks to finance the Montana Timberland
Acquisition. The Line of Credit bears a floating rate of interest and allows
the Partnership to borrow up to $275 million. The Line of Credit decreases by
$13,750,000 semiannually, on May 1 and November 1 of each year through November
1, 2001, at which time the balance is due. At December 31, 1993 the
Partnership had $260 million of borrowings outstanding on the Line of Credit of
which $20 million was repaid on January 3, 1994.

The Partnership's and Manufacturing's long-term debt agreements, Line
of Credit and short-term revolving credit facilities contain certain
restrictive covenants, including limitations on harvest levels, land sales,
cash distributions and the amount of future indebtedness. The Partnership and
Manufacturing were in compliance with such covenants as of December 31, 1993
and 1992.

On August 30, 1993, the Partnership redeemed the 1.25 million Deferred
Participation Interests ("DPIs") for $49.50 per DPI (on a pre- Unit split
basis), plus direct costs associated with redeeming the DPIs (see Note 9 of
Notes to Combined Financial Statements).

The Partnership will distribute $0.38 per Unit for the fourth quarter
of 1993. The distribution will equal $18.8 million (including $3.4 million to
the General Partner), and will be paid on March 1, 1994 to Unitholders of
record on February 15, 1994. The computation of cash available for
distribution includes a required reserve for the payment of principal and
interest, as well as other reserves established at the discretion of the
General Partner, for working capital, capital expenditures or future cash
distributions.

Cash required to meet the Partnership's quarterly cash distributions,
capital expenditures and to satisfy interest and principal payments on the
Company's debt will be significant. The General Partner expects that all debt
service will be funded from cash generated by operations. The Partnership
expects to make cash distributions from current funds and cash generated from
operations.

The Company is involved in certain environmental and regulatory
proceedings and other related matters. Although it is possible that new
information or future developments could require the Company to reassess its
potential exposure related to these matters, the Company believes, based upon
available information, that the resolution of these issues will not have a
materially adverse effect on its results of operations or financial position.

<PAGE> 21

CAPITAL EXPENDITURES

Capital expenditures for the Resources Segment were $260.5 million,
$7.9 million, and $6.5 million for 1993, 1992 and 1991, respectively.
Resources Segment capital expenditures included $255.3 million of timberlands
purchased as part of the Montana Timberland Acquisition as well as construction
of logging roads and reforestation. Capital expenditures for the Manufacturing
Segment were $24.1 million, $17.7 million, and $4.9 million for 1993, 1992 and
1991, respectively. Manufacturing Segment capital expenditures increased during
1993 and 1992 primarily due to the installation of various lumber and plywood
optimization projects.

Planned capital expenditures for the Resources Segment in 1994 are
$7.8 million, primarily for logging roads and reforestation. The Manufacturing
Segment's 1994 planned capital expenditures are $21.2 million for the purchase
and installation of various lumber value-added projects, semi-automatic lay-up
line and core composer in plywood, wood chip refining and value-added projects
in MDF, equipment upgrades to meet environmental requirements, as well as
replacements and upgrades of other equipment in several of the Conversion
Facilities.

It is anticipated that the planned 1994 capital expenditures will be
funded from current funds and cash generated from operations.

RESULTS OF OPERATIONS

The following table compares operating income by segment for the years
ended December 31, 1993, 1992 and 1991.

Operating Income by Segment
(In Thousands)

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Resources . . . . . . . . . . . . $135,238 $ 86,315 $ 56,928
Manufacturing . . . . . . . . . . 11,471 28,164 16,110
Other & Eliminations . . . . . (20,152) (16,697) (17,378)
-------- -------- --------
Total . . . . . . . . . . . . . . $126,557 $ 97,782 $ 55,660
-------- -------- --------
</TABLE>

1993 COMPARED TO 1992

Resources Segment revenues were $266.1 million and $211.7 million for
the years ended 1993 and 1992, respectively. Revenues were $54.4 million
higher in 1993 primarily due to higher prices for both export and domestic
logs, offset in part by lower land sales and lower

<PAGE> 22
harvest levels. Export and domestic log prices increased in 1993 by 33% and
40%, respectively, as compared to 1992. The higher prices were primarily the
result of increased demand for wood products as well as from log shortages in
the Northwest caused in part by legal challenges to federal timber sales. In
addition, 1993 land sales were $12.2 million lower than 1992 primarily due to
the July 1992 strategic sale of the 164,000 acre Gallatin Unit. The Company's
1993 fee timber harvest was 458 MMBF (including 12 MMBF from the Timberlands
acquired during the Montana Timberland Acquisition) which was 11 MMBF lower
than 1992 and was the result of planned harvest reductions.

Resources Segment costs and expenses were $130.9 million and $125.4
million for the years ended 1993 and 1992, respectively. Costs and expenses
were $5.5 million higher in 1993 primarily due to higher log & haul costs which
were the result of longer hauling distances and more expensive line and
helicopter logging, higher Washington state excise tax expense resulting from
higher stumpage values and higher silviculture expenses. These amounts were
partially offset by a reduction in the planned fee harvest level.

Manufacturing Segment revenues were $324.6 million and $294.0 million
for the years ended 1993 and 1992, respectively. Revenues were $30.6 million
higher in 1993 due to higher prices in all product lines, partially offset by
10% lower lumber sales volume resulting primarily from the July 1992 sale of
the Belgrade sawmill. Lumber (on a comparable mill basis), plywood, and MDF
prices increased in 1993 by 23%, 21% and 4%, respectively, over 1992. The
higher prices were the result of improved domestic wood product demand and the
impact of the log supply shortage.

Manufacturing Segment costs and expenses were $313.1 million and
$265.8 million for the years ended 1993 and 1992, respectively. The $47.3
million of higher costs and expenses were due to higher log costs (38% and 44%
higher for lumber and plywood, respectively) which were the result of improving
demand for finished wood products and the log supply shortage. In addition,
during 1993 the Company changed its method for valuing inventories from average
cost to last-in, first-out ("LIFO") which resulted in $18.0 million of
additional costs for the Manufacturing segment (see Note 3 to Notes to Combined
Financial Statements).

Other and eliminations increased by $3.5 million for the year ended
1993 as compared to 1992 primarily due to higher employee benefit plan
expenses. These amounts were offset in part by lower intersegment profit
accumulating in inventory resulting from the Company's change in its method for
valuing inventories from average cost to LIFO. The change to LIFO resulted in
approximately $10.0 million of lower profit accumulating in inventory. Profit
resulting from intercompany log sales is deferred until Manufacturing converts
existing log inventories into finished products and sells them to third
parties.

The income allocated to the General Partner increased by $4.1
million during 1993 compared to 1992 as a result of a higher net income and
higher quarterly distributions to the Unitholders which increased
the incentive distribution paid to the General Partner. Net income is
allocated to the General Partner based on 2 percent of the Company's net income
(adjusted for

<PAGE> 23
the incentive distribution paid), plus the incentive
distribution. The incentive distribution is based on a percentage of the
quarterly distribution paid which totaled $1.30 per Unit for the year ended
1993 which compares to $1.13 per Unit in 1992 (per Unit amounts were restated
for the December 6, 1993 three-for-one Unit split).

1992 COMPARED TO 1991

Resources Segment revenues were $211.7 million and $199.0 million for
the years ended 1992 and 1991, respectively. Revenues were $12.7 million
higher in 1992 primarily due to higher land sales as well as higher prices for
domestic and export logs which were up 26% and 28%, respectively. The higher
prices were due to timber supply shortages resulting from legal challenges and
environmental restrictions as well as increased demand for finished wood
products. Land sales were $9.6 million higher in 1992 as compared to 1991
primarily due to the July 1992 sale of the Gallatin Unit. These amounts were
partially offset by 15% lower domestic log sales volumes resulting from planned
harvest reductions. The Company's 1992 fee timber harvest was 469 MMBF, which
compares to 563 MMBF for 1991.

Resources Segment costs and expenses were $125.4 million and $142.1
million for the years ended 1992 and 1991, respectively. The lower costs and
expenses were primarily due to planned harvest reductions. In addition, in
July 1992 the Partnership updated its timber inventory system and revised the
associated timber depletion rates. This change in accounting estimate resulted
in overall lower depletion rates and increased net income for the year ended
December 31, 1992 by approximately $1.6 million.

Manufacturing Segment revenues were $294.0 million and $249.3 million
for the years ended 1992 and 1991, respectively. Revenues were $44.7 million
higher in 1992 due to higher prices for lumber, plywood and MDF that were 18% ,
18% and 4% higher, respectively, as well as higher volumes for plywood and MDF
of 9% and 4%, respectively. The higher prices were primarily the result of
stronger demand for industrial, repair/remodel, and housing related wood
products. In addition, Manufacturing Segment lumber prices increased due to an
improved sales mix which resulted from the sale of the Belgrade Studmill which
sold lower valued, commodity type products. The higher volumes of plywood and
MDF were largely attributed to productivity improvements resulting from various
capital projects as well as additional overtime needed to meet the improving
demand from the domestic plywood market.

Manufacturing Segment costs and expenses were $265.8 million and
$233.2 million for the years ended 1992 and 1991, respectively. Costs and
expenses were $32.6 million higher in 1992 primarily due to higher sales
volumes for plywood and MDF as well as higher log costs which were 25% and 19%
higher for lumber and plywood, respectively.

Other and eliminations were $681,000 lower in 1992, compared to 1991
primarily due to lower corporate expenses associated with public relations
costs and employee benefit costs. These amounts were partially offset by less
profit from intercompany log sales accumulating in inventory which resulted
from lower ending Manufacturing log inventories. Profit resulting from

22
<PAGE> 24
intercompany log sales is deferred until Manufacturing converts existing log
inventories into finished products and sells them to third parties.

Other income and expense in 1992 included a gain on the sale of the
Timberlands in the Gallatin Unit which was partially offset by a loss on the
sale of the Belgrade sawmill. During 1991, a provision for loss was
established for the estimated loss on the sale of the Belgrade sawmill totaling
$2.2 million.

The income allocated to the General Partner increased by $2.2 million
during the year ended 1992 compared to 1991 as a result of higher net income
and higher quarterly distributions to the Unitholders which increased the
incentive distribution paid to the General Partner. Net income is allocated to
the General Partner based on 2 percent of the Company's net income (adjusted
for the incentive distribution paid), plus the incentive distribution. The
incentive distribution is based on a percentage of the quarterly distribution
paid which totaled $1.13 per Unit during the year ended 1992 compared to $1.07
for 1991 (per Unit amounts were restated for the December 6, 1993 three-for-one
Unit split).

EXPORT SALES

The Company sells logs and finished wood products for export. These
sales are denominated in U.S. dollars and are generally sold to Pacific Rim
countries, principally Japan, and Canada. Combined export revenues as a
percentage of total revenues were 17 percent, 16 percent and 20 percent for
1993, 1992, and 1991, respectively.

EFFECT OF INFLATION

During recent years the Company has experienced increased costs due to
the effect of inflation, particularly in the Manufacturing Segment, on the cost
of raw materials (cost of logs), labor, supplies and energy. However, the
Company utilizes the LIFO inventory valuation method for its raw materials,
work-in-process and finished goods inventory which generally matches current
costs to current revenues and thus, tends to reflect the impact of inflation on
cost of goods sold.

<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION

PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(In Thousands, Except Per Unit)
<S> <C> <C> <C>
Revenues ................................... $501,006 $439,904 $389,785
-------- -------- --------
Costs and Expenses:
Cost of Goods Sold ..................... 337,107 305,686 297,402
Selling, General and Administrative .... 37,342 36,436 36,723
-------- -------- --------
Total Costs and Expenses ............. 374,449 342,122 334,125
-------- -------- --------
Operating Income ........................... 126,557 97,782 55,660

Interest Expense ........................... (36,737) (35,749) (36,156)
Interest Income ............................ 2,203 2,870 2,534
Other Income (Expense) - Net ............... 925 291 (2,726)
-------- -------- --------
Income before Income Taxes ................. 92,948 65,194 19,312
Provision for Income Taxes ................. 1,504 973 583
-------- -------- --------
Net Income ................................. $ 91,444 $ 64,221 $ 18,729

General Partner Interest ................... 8,837 4,760 2,527
-------- -------- --------
Net Income Allocable to Unitholders ........ $ 82,607 $ 59,461 $ 16,202
-------- -------- --------
Net Income per Unit ........................ $ 1.92 $ 1.34 $ 0.37
</TABLE> -------- -------- --------

See accompanying Notes to Combined Financial Statements.

<PAGE> 26
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED BALANCE SHEET

<TABLE>
<CAPTION>
December 31,
--------------------
1993 1992
-------- --------
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ........................ $ 34,025 $ 69,582
Accounts Receivable .............................. 28,711 14,528
Inventories ...................................... 48,102 50,048
Timber Contract Deposits ......................... 2,987 2,477
Other Current Assets ............................. 5,399 1,737
-------- --------
119,224 138,372

Timber and Timberlands - Net ...................... 526,762 289,818
Property, Plant and Equipment - Net ............... 162,633 154,644
Other Assets ...................................... 7,923 3,282
-------- --------
Total Assets .................................... $816,542 $586,116
-------- --------
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt ................ $ 13,000 $ 8,600
Current Portion of Reducing Revolving
Line of Credit ................................. 12,500
Accounts Payable ................................. 13,038 9,381
Interest Payable ................................. 3,005 2,263
Wages Payable .................................... 7,857 6,471
Taxes Payable .................................... 5,648 3,609
Workers' Compensation Liabilities ................ 2,610 2,682
Other Current Liabilities ........................ 8,338 4,718
-------- --------
65,996 37,724

Long-Term Debt .................................... 296,900 309,900
Reducing Revolving Line of Credit ................. 247,500
Workers' Compensation Liabilities ................. 9,805 9,662
Other Liabilities ................................. 3,786 3,537
-------- --------
Total Liabilities ............................... 623,987 360,823
-------- --------
Commitments and Contingencies

PARTNERS' CAPITAL
Limited Partners' Units ........................... 192,925 211,127
Deferred Participation Interests .................. 15,000
General Partner.................................... (370) (834)
-------- --------
Total Partners' Capital ......................... 192,555 225,293
-------- --------
Total Liabilities and Partners' Capital ......... $816,542 $586,116
</TABLE> -------- --------

See accompanying Notes to Combined Financial Statements.

<PAGE> 27
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................ $ 91,444 $ 64,221 $ 18,729
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization ........... 38,806 39,008 42,992
Gain on Property Dispositions - Net ................ (7,708) (20,876) (7,509)
Working Capital Changes:
Accounts Receivable ............................... (14,183) 1,276 (213)
Inventories ....................................... 1,946 (6,237) 1,471
Timber Contract Deposits .......................... (510) 2,472 972
Other Current Assets .............................. (3,662) (549) 2,215
Accounts Payable .................................. 3,657 (1,156) 1,460
Interest Payable .................................. 742 51 103
Wages Payable ..................................... 1,386 (924) 2,232
Taxes Payable ..................................... 2,039 332 461
Workers' Compensation Liabilities ................. (72) 102 (193)
Other Current Liabilities ......................... 3,620 (446) (2,172)
Other .............................................. (2,164) 730 1,549
--------- --------- ---------
Net Cash Provided By Operating Activities ......... $ 115,341 $ 78,004 $ 62,097
--------- --------- ---------
Cash Flows From Investing Activities:
Additions to Properties ............................. $(284,612) $ (25,615) $ (11,398)
Proceeds from Property Dispositions ................. 6,496 28,591 10,753
Other ............................................... (140)
Net Cash Provided By (Used In) --------- --------- ---------
Investing Activities ............................. $(278,116) $ 2,976 $ (785)
--------- --------- ---------
Cash Flows From Financing Activities:
Cash Distributions .................................. $ (61,164) $ (50,580) $ (46,465)
Redeemed Units at Cost .............................. (1,220)
Proceeds from Reducing Revolving Line of Credit ..... 260,000
Retirement of Long-Term Debt ........................ (8,600) (6,500)
Redemption of Deferred
Participation Interests at cost .................... (63,018)
Net Cash Provided By (Used In) --------- --------- ---------
Financing Activities ............................. $ 127,218 $ (57,080) $ (47,685)
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents...... (35,557) 23,900 13,627
Cash and Cash Equivalents:
Beginning of Year ................................... 69,582 45,682 32,055
--------- --------- ---------
End of Year ......................................... $ 34,025 $ 69,582 $ 45,682
--------- --------- ---------
Supplementary Cash Flow Information
Interest Paid ....................................... $ 35,995 $ 35,698 $ 36,053
Income Taxes Paid (Refunded) - Net .................. $ 1,847 $ 393 $ (1,097)
</TABLE>

See accompanying Notes to Combined Financial Statements.

<PAGE> 28

PLUM CREEK TIMBER COMPANY, L. P.
NOTES TO COMBINED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

BASIS OF PRESENTATION. Plum Creek Timber Company, L.P. (the
"Partnership"), a Delaware limited partnership and its subsidiaries, Plum Creek
Manufacturing, L.P. ("Manufacturing"), and Plum Creek Marketing, Inc.
("Marketing"), own, manage and operate 2.0 million acres of timberland and nine
wood products conversion facilities in Montana, Washington and Idaho. The
Partnership owns 98 percent of Manufacturing and 96 percent of Marketing. Plum
Creek Management Company, L.P. (the "General Partner"), manages the businesses
of the Partnership, Manufacturing and Marketing and owns the remaining 2
percent and 4 percent of Manufacturing and Marketing, respectively. As used
herein, "Company" refers to the combined entities of the Partnership,
Manufacturing and Marketing. "Resources Segment" refers to the timber and land
management business of the Partnership, and Manufacturing and "Manufacturing
Segment" refer to the combined businesses of Manufacturing and Marketing.

The combined financial statements of the Company include all the
accounts of the Partnership, Manufacturing and Marketing. All significant
intercompany transactions have been eliminated in combination. Certain
financial statement reclassifications have been made to the years presented for
comparability purposes and have no impact on net income.

NET INCOME PER UNIT. Net income per Unit is calculated using the
weighted average number of Units outstanding, net of redeemed Units, plus any
unredeemed Deferred Participation Interests ("DPIs" - see Note 9 to Notes to
Combined Financial Statements) divided into the combined Partnership net
income, after adjusting for the General Partner Interest. The weighted average
number of Units outstanding was 43,084,327, 44,358,300 and 44,375,982 for the
years ended December 31, 1993, 1992 and 1991, respectively.

On October 18, 1993, the General Partner authorized a three-for-one
Unit split of the Partnership's outstanding Units. The Unit split entitled
each Unitholder of record on November 15, 1993 to receive two additional Units
for each Unit held on the record date. The split was effective and payable on
December 6, 1993. All references to number of Units and to per Unit
information in the combined financial statements have been restated to reflect
the Unit split on a retroactive basis.

REVENUE RECOGNITION. Revenues received from the sale of logs, wood
products and by-products, primarily wood chips, are generally recorded as
operating revenue at the time of shipment. Sales of export logs and wood
products are denominated in U.S. dollars.

CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.

27
<PAGE> 29

INVENTORIES. Inventories are stated at the lower of cost or market.
Cost for manufactured inventories includes raw materials, labor, supplies,
energy, depreciation and production overhead. Cost of logs purchased by
Manufacturing from the Partnership is determined quarterly, based upon
estimated market prices and terms in effect at the time. Cost of export log
inventories includes timber depletion, stumpage, associated logging and
harvesting costs, road costs and production overhead. Effective January 1,
1993, the Company changed its method for valuing logs, work-in-process and
finished goods inventories from the average cost to the last-in, first-out
("LIFO") method (see Note 3 to Notes to Combined Financial Statements). The
average cost method is used to value the Company's supplies inventories.

TIMBER AND TIMBERLANDS. Timber and timberlands, including logging
roads, are stated at cost less depletion for timber previously harvested and
accumulated amortization. Cost of the Partnership's timber harvested is
determined based on the volume of timber harvested in relation to the amount of
estimated recoverable timber. The Partnership estimates its timber inventory
using statistical information and data obtained from physical measurements,
site maps, photo-types and other information gathering techniques. The cost of
logging roads is amortized over the estimated useful life on a straight-line
basis.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is
stated at cost. Improvements and replacements are capitalized. Depreciation
is provided for on a straight-line basis for buildings and on a
unit-of-production basis for machinery and equipment, which approximates a
straight-line basis. Maintenance and repairs necessary to maintain properties
in operating condition are expensed as incurred. The cost and related
accumulated depreciation of property sold or retired are removed from the
accounts and any gain or loss is recorded.

INCOME TAXES. The Partnership and Manufacturing are not subject to
federal income tax and their income or loss is included in the tax returns of
individual Unitholders. The Partnership files composite returns in the states
in which it does business, paying taxes for nonresident Unitholders.
Marketing, as a separate taxable corporation, provides for income taxes based
upon its own taxable income. Marketing provides for deferred taxes in order to
reflect the tax consequences in future years of the difference between the
financial statement and tax basis of assets and liabilities at year-end.

2. ACCOUNTS RECEIVABLE

Accounts receivable were presented net of allowances for doubtful
accounts of $1,174,000 and $1,071,000 at December 31, 1993 and 1992,
respectively.

28
<PAGE> 30
3. INVENTORIES

Inventories consisted of the following at December 31 (in thousands):

<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Raw materials (logs) . . . . . . . . . . . . . . . $22,868 $23,669
Work-in-progress . . . . . . . . . . . . . . . . . 5,442 5,142
Export logs . . . . . . . . . . . . . . . . . . . 2,488 4,480
Finished goods . . . . . . . . . . . . . . . . . . 13,570 13,800
------- -------
44,368 47,091
Supplies . . . . . . . . . . . . . . . . . . . . . 3,734 2,957
------- -------
Total . . . . . . . . . . . . . . . . . . . . $48,102 $50,048
------- -------
</TABLE>

Effective January 1, 1993, the Company changed its method of valuing
logs, work-in-process and finished goods inventories from the average cost
method of accounting to the LIFO method. Management believes the LIFO method
results in a better matching of current costs with current revenues. The
effect of this change in 1993 was to decrease earnings by $8.0 million, or
$0.18 per Unit. The cumulative effect of this accounting change and the pro
forma effects on prior years' earnings have not been included because such
effects are not reasonably determinable. The cost of the LIFO inventories
valued at the lower of average cost or market (which approximates current cost)
at December 31, 1993 was $52.4 million.

4. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT

Timber and timberlands consisted of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Timber and logging roads - net . . . . . . . . . $482,175 $263,264
Timberlands . . . . . . . . . . . . . . . . . . . 44,587 26,554
-------- --------
Timber and Timberlands - net . . . . . . . . $526,762 $289,818
-------- --------
</TABLE>

29
<PAGE> 31
Property, plant and equipment consisted of the following at December
31 (in thousands):

<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Land, buildings and improvements . . . . . . . . $ 43,173 $ 41,876
Machinery and equipment . . . . . . . . . . . . . 197,353 174,684
-------- --------
240,526 216,560
Accumulated depreciation . . . . . . . . . . . . . (77,893) (61,916)
-------- --------
Property, Plant and Equipment - net . . . . . $162,633 $154,644
-------- --------
</TABLE>

On November 1, 1993, the Partnership purchased approximately 865,000
acres of timberland and other timber related assets (the "Montana Timberland
Acquisition") from Champion International Corporation for approximately $260
million. Approximately $255.3 million of the Montana Timberland Acquisition's
purchase price was allocated to timber and timberlands. These timberlands are
located in western Montana in close proximity to existing Company assets.

On July 31, 1992, the Company completed the sale of approximately
164,000 acres of timberland in its Gallatin Unit, together with its Belgrade
sawmill for $23 million plus the value of inventory. The sale resulted in a
net gain of approximately $15.6 million.

5. BORROWINGS

Long-term debt consisted of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Senior Notes . . . . . . . . . . . . . . . $158,400 $161,700
First Mortgage Notes . . . . . . . . . . . 151,500 156,800
Line of Credit . . . . . . . . . . . . . . 260,000
-------- --------
Total Long-term Debt . . . . . . . . . . 569,900 318,500
Less: Current Portion . . . . . . . . . . (25,500) (8,600)
-------- --------
Long-Term Portion . . . . . . . . . . . . $544,400 $309,900
-------- --------
</TABLE>

The Senior Notes and First Mortgage Notes (the "Note Agreements") bear
interest of 11 1/8% and are redeemable prior to maturity subject to a premium
on redemption, which is based upon interest rates of U.S. Treasury securities
having a similar average maturity as the Note Agreements. At December 31,
1993, the premium that would have been due upon early retirement would have
approximated $110 million. Interest is payable on June 8th and December 8th of
each year. The Senior Notes are unsecured. The First Mortgage Notes are
collateralized by the property, plant and equipment of Manufacturing and are
guaranteed by the Partnership.

30
<PAGE> 32
On October 28, 1993, the Partnership entered into a reducing revolving
line of credit ("Line of Credit") with a group of banks to provide for up to
$275 million of borrowings which expire on November 1, 2001. The Line of
Credit bears a floating rate of interest (4.7% at December 31, 1993) and is
unsecured. The available borrowings under the Line of Credit decrease by
$13,750,000 semiannually, on May 1 and November 1 of each year through November
1, 2001, at which time the balance is due. At December 31, 1993, the
Partnership had $260 million of borrowings outstanding under the Line of Credit
of which $20 million was repaid on January 3, 1994.

Annual principal payments on the Note Agreements and the mandatory
commitment reductions under the Line of Credit are as follows:

<TABLE>
<CAPTION>
First
Senior Mortgage
Notes Notes Line of Credit
----------- ----------- --------------
<S> <C> <C> <C>
1994 and 1995 $ 6,600,000 $ 6,400,000 $27,500,000
1996 6,600,000 7,500,000 27,500,000
1997 8,300,000 9,100,000 27,500,000
1998 and 1999 8,300,000 10,100,000 27,500,000
2000 14,212,500 12,737,500 27,500,000
2001 14,212,500 12,737,500 82,500,000
2002 through 2007 14,212,500 12,737,500
</TABLE>

The Note Agreements and Line of Credit contain certain restrictive
covenants, including limitations on harvest levels, land sales, cash
distributions and the amount of future indebtedness. The Company was in
compliance with such covenants at December 31, 1993 and 1992.

The Partnership and Manufacturing have short-term revolving credit
agreements with a group of banks providing for up to $15 million and $20
million, respectively, of borrowings to be used for working capital purposes
and for standby letters of credit. The short-term revolving credit agreements
expire in July 1994. At December 31, 1993, the Partnership's and
Manufacturing's accounts receivable and inventories served as collateral for
any borrowings made under their respective bank revolving credit agreement.
The Partnership had outstanding letters of credit totaling $2.6 million and
$2.8 million at December 31, 1993 and 1992, respectively. Manufacturing had
outstanding letters of credit of $0.5 million at December 31, 1993 and 1992.

All principal and interest payments due under the Note Agreements,
Line of Credit and the short-term revolving credit facilities are nonrecourse
to the General Partner.

31
<PAGE> 33
The Company leases buildings and equipment under non-cancelable
operating lease agreements. The Company's operating lease expense was $1.9
million for 1993, 1992, and 1991. The following summarizes the minimum lease
payments (in thousands):

<TABLE>
<S> <C>
1994 . . . . . . . . . . . $ 1,779
1995 . . . . . . . . . . . 1,639
1996 . . . . . . . . . . . 1,555
1997 . . . . . . . . . . . 1,467
1998 . . . . . . . . . . . 1,298
Thereafter . . . . . . . . 2,570
-------
Total . . . . . . . . . . $10,308
-------
</TABLE>

6. PARTNERS' CAPITAL

The changes in Partners Capital were as follows (in thousands):

<TABLE>
<CAPTION>
Limited General
Partners DPIs Partner Total
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
January 1, 1991 . . . . . . . . . . . . . $226,045 $ 15,000 $ (437) $240,608
Net Income . . . . . . . . . . . . . . 16,202 2,527 18,729
Cash Distributions . . . . . . . . . . (43,339) (3,126) (46,465)
Redeemed Units at Cost . . . . . . . . (1,220) (1,220)
-------- -------- ------- --------
December 31, 1991 . . . . . . . . . . . . 197,688 15,000 (1,036) 211,652
Net Income . . . . . . . . . . . . . . 59,461 4,760 64,221
Cash Distributions . . . . . . . . . . (46,022) (4,558) (50,580)
-------- -------- ------- --------
December 31, 1992 . . . . . . . . . . . 211,127 15,000 (834) 225,293
Net Income . . . . . . . . . . . . . . 82,607 8,837 91,444
Cash Distributions . . . . . . . . . . (52,791) (8,373) (61,164)
Redemption of DPIs at Cost . . . . . (48,018) (15,000) (63,018)
-------- -------- ------- --------
December 31, 1993 . . . . . . . . . . . $192,925 $ $ (370) $192,555
-------- -------- ------- --------
</TABLE>
The total number of Units outstanding at December 31, 1993 and 1992
was 40,608,300 as restated for the December 6, 1993 three-for-one Unit split.
At December 31, 1992 there were 1.25 million DPIs (on a pre-Unit split basis)
outstanding. The DPIs were redeemed on August 30, 1993 ( See Note 9 to Notes
to Combined Financial Statements).

In accordance with the Partnership Agreement, the General Partner is
authorized to make quarterly cash distributions. For the years ended December
31, 1993, 1992 and 1991, the General Partner declared $1.38, $1.17 and $1.07
per Unit, respectively, to be paid to the Partnership's Unitholders. If
quarterly cash distributions exceed $0.22 per Unit, the General Partner is
provided with an incentive distribution. See Note 9 to Notes to Combined
Financial Statements.

32
<PAGE> 34
7. INCOME TAXES

The provision for income taxes was as follows (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1993 1992 1991
------ ---- ----
<S> <C> <C> <C>
Current Federal . . . . . . . $ 49 $ 61 $295
Current State . . . . . . . . 1,455 912 288
------ ---- ----
Total . . . . . . . . . . . . $1,504 $973 $583
------ ---- ----
</TABLE>

Reconciliation of the federal statutory rate to the effective income
tax rate was as follows:

<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate . . . . . . . . . . . . . 35.0% 34.0% 34.0%
State tax net of federal tax benefit . . . . 1.6 1.4 1.0
Nontaxable partnership income . . . . . . . . (34.3) (33.5) (32.6)
Taxable gain upon reorganization . . . . . . 18.1
Net operating loss carryforward . . . . . . (0.7) (0.4) (17.5)
----- ----- -----
Effective tax rate . . . . . . . . . . . 1.6% 1.5% 3.0%
----- ----- -----
</TABLE>

Manufacturing was reorganized into a limited partnership on January 1,
1991, following a favorable Internal Revenue Service ("IRS") ruling which
clarified that certain operations constitute qualifying income under the
natural resources exception of the Internal Revenue Code.

At December 31, 1993, Marketing had available a net operating loss
carryforward of approximately $2.5 million to offset future taxable income
through the year 2005. During 1991, $10.6 million of the 1990 net operating
loss carryforward was utilized to offset taxable gain resulting from the
reorganization of Manufacturing. The benefit of the remaining net operating
loss carryforward has not been recognized in the financial statements.

33
<PAGE> 35
8. EMPLOYEE PENSION AND RETIREMENT PLANS

PENSION PLAN. The Company's pension plan is a non-contributory
defined benefit plan covering substantially all employees. The salaried
employee benefits are based on years of credited service and the highest
five-year average compensation levels, and the hourly employee benefits are
based on years of service. Contributions to the plans are based upon the
Projected Unit Credit actuarial funding method and are limited to amounts that
are currently deductible for tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future. The Company's pension expense was $2.1
million, $1.6 million and $1.2 million for 1993, 1992, and 1991, respectively.

The following table sets forth the funded status of the Company's
pension plan at December 31 (in thousands):

<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . $28,611 $23,675
Non-vested . . . . . . . . . . . . . . . . . . . . . . . . 637 414
------- -------
Accumulated benefit obligation . . . . . . . . . . . . . . . . 29,248 24,089
------- -------

Projected benefit obligation . . . . . . . . . . . . . . . . . 37,514 30,193
Plan assets, primarily marketable equity and debt . . . . . . .
securities, at fair market value . . . . . . . . . . . . . . . 31,437 26,191
------- -------
Projected benefit obligation in excess of plan assets . . . . . (6,077) (4,002)
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . 7,934 4,880
Prior service cost not yet recognized . . . . . . . . . . . . . 366 62
------- -------
Prepaid pension cost . . . . . . . . . . . . . . . . . . . . . $ 2,223 $ 940
------- -------
</TABLE>

The components of the Company's pension cost were as follows
(in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . . $ 1,374 $ 1,084 $ 891
Interest cost on a projected obligation . . . . . . 2,573 2,335 2,086
Return on plan assets . . . . . . . . . . . . . . . (3,578) (1,008) (3,878)
Minimum amortization of loss . . . . . . . . . . . 1,763 (784) 2,092
------- ------- -------
Net pension cost . . . . . . . . . . . . . . . $ 2,132 $ 1,627 $ 1,191
------- ------- -------
</TABLE>

34
<PAGE> 36
The following assumptions were used in the accounting for the
Company's pension plan as of December 31:

<TABLE>
<CAPTION>
1993 1992 1991
------ ----- ------
<S> <C> <C> <C>
Weighted average discount rate . . . . . . . . . . . . . 7.5% 8.5% 8.5%
Rate of increase in compensation levels . . . . . . . . 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets . . . . 8.0% 9.0% 9.0%
</TABLE>

THRIFT AND PROFIT SHARING PLAN. The Company sponsors an employee
thrift and profit sharing plan under section 401 of the Internal Revenue Code.
This plan covers substantially all full-time employees. The Company matches
employee contributions of up to 6 percent of compensation at rates ranging from
35 to 75 percent, depending upon the Company's financial performance. Amounts
charged to expense were $2.3 million, $2.4 million and $2.7 million during
1993, 1992 and 1991, respectively.

OTHER BENEFIT PLANS. Certain executives and key employees of the
General Partner participate in incentive benefit plans established by the
General Partner which provide for the granting of Units and/or cash bonuses
upon meeting performance objectives. See Note 9 to Notes to Combined Financial
Statements.

9. RELATED-PARTY TRANSACTIONS

The General Partner is responsible for all decisions related to the
management of the Company. The General Partner has a 2 percent general partner
interest in the income and cash distributions of the Partnership, subject to
certain adjustments, and owns 2 percent and 4 percent interests in
Manufacturing and Marketing, respectively. The Company reimburses the General
Partner for the actual cost of administering its businesses. During 1993, the
Company directly paid the costs associated with administering the businesses;
however, amounts reimbursed to the General Partner for such costs were $4.8
million for the years ended December 31, 1992 and 1991. The General Partner
holds 180,000 Units in connection with senior management's Unit Award Plan.

Effective October 1, 1993, the General Partner established a Long-Term
Incentive Plan ("LTIP") which provides for granting Unit Appreciation Rights
("UARs") to certain executives of the General Partner. When any of five Unit
Value Targets ("UVTs") established by the LTIP are met through a combination of
Unit market appreciation plus Partnership cash distributions, a percentage of
the UARs is triggered and Units are credited to the executives' accounts. The
performance period under the LTIP during which UVTs may be met ends December
31, 1998 at which time any earned Units will be distributed. Costs incurred by
the General Partner in administering and funding the LTIP will be borne by the
Partnership.

35
<PAGE> 37
The General Partner has granted 1,625,000 UARs which could result in a
total of 817,140 Units being earned under the LTIP if all UVTs are met. Units
in the executives' accounts will earn additional Units equal to the amount of
any subsequent Partnership cash distributions. In January 1994, the first UVT
was achieved and 75,428 Units were allocated to the executives' accounts.
Compensation expense with respect to the achievement of the first UVT will be
approximately $1.9 million and will be recognized over the remaining five-year
performance period ending December 31, 1998.

Effective January 1, 1994, the General Partner established a Key
Employee Long-Term Incentive Plan ("KLTIP") for certain of its other key
employees. The KLTIP provisions are similar to the LTIP described above, but
different UVTs apply. The General Partner has granted 376,000 UARs which could
result in a total of 189,022 Units being earned under the KLTIP if all UVTs are
met. Units in the participants' accounts will earn additional Units equal to
the amount of any subsequent Partnership cash distributions. No UVTs have been
achieved under the KLTIP. Costs incurred by the General Partner in
administering and funding the plan will be borne by the Partnership.

Effective January 1, 1994, the General Partner established a
Management Incentive Plan ("MIP") for certain executives of the General
Partner. An annual bonus of up to 100% of the respective executive's base
salary may be awarded if certain performance objectives established by the
General Partner are met by the Company and by the executive. One-half of the
bonus will be paid annually in cash and the remaining half will be converted
into Units at fair market value and will be distributed at the end of the three
years. Units in executives' accounts will earn additional Units equal to the
amount of any subsequent Partnership cash distributions. Costs incurred in
administering and funding the plan will be borne by the General Partner.

On August 12, 1993, the Partnership held a special meeting of the
Unitholders to approve a proposal to redeem the 1.25 million DPIs (on a
pre-Unit split basis). Approval was obtained and on August 30, 1993, the
Partnership redeemed the 1.25 million DPIs for $49.50 per DPI (on a pre-Unit
split basis), plus direct costs associated with redeeming the DPIs.

Net income is allocated to the General Partner based on 2 percent of
the Company's combined net income (adjusted for the incentive distribution),
plus the incentive distribution, as provided by the Partnership Agreement. The
incentive distributions paid in 1993, 1992 and 1991 were approximately $7.2
million, $3.5 million and $2.2 million, respectively.

In December 1992, the Company purchased certain hard rock mineral
interests from a subsidiary of Burlington Resources Inc., the Partnership's
former General Partner, for the estimated fair market value of $2 million.

Certain conflicts of interest could arise as a result of the
relationships described above. The Board of Directors and management of the
General Partner have a duty to manage the Company in the best interests of the
Unitholders and, consequently, must exercise good faith and integrity in
handling the assets and affairs of the Company. Related non-interest bearing
receivables and

36
<PAGE> 38
payables between the General Partner and the Company are settled in the
ordinary course of business.

10. COMMITMENTS AND CONTINGENCIES

A portion of the Company's log requirements is acquired through
contracts with public and private sources. Except for required deposits, no
amounts are recorded until such time as the Company harvests the timber. At
December 31, 1993 and 1992, the unrecorded amounts of those contract
commitments were approximately $47.0 million and $22.9 million, respectively.
During 1993, the Partnership entered into a log sourcing contract to sell
approximately 950 million board feet ("MMBF") of logs to a customer over a
10-year period ending in 2003, at prevailing market rates. At December 31,
1993 the Partnership had a remaining commitment of approximately 926 MMBF.

There are no contingent liabilities which would have a materially
adverse effect on the financial position or the results of operations of the
Company.

The Company is subject to regulations regarding harvest practices and
is involved in various legal proceedings, including environmental matters,
incidental to its business. While administration of current regulations and
any new regulations or proceedings have elements of uncertainty, the General
Partner believes that none of the pending legal proceedings or regulatory
matters will have a materially adverse effect on the financial position or the
results of operations of the Company.

37
<PAGE> 39
11. SEGMENT INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
(In Thousands)
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Revenues
Resources $266,084 $211,701 $199,005
Manufacturing 324,625 294,024 249,296
Eliminations (89,703) (65,821) (58,516)
-------- -------- --------
$501,006 $439,904 $389,785
-------- -------- --------
Operating Income
Resources $135,238 $ 86,315 $ 56,928
Manufacturing 11,471 28,164 16,110
Other and Eliminations (20,152) (16,697) (17,378)
-------- -------- --------
$126,557 $ 97,782 $ 55,660
-------- -------- --------
Depreciation, Depletion and Amortization
Resources $ 22,570 $ 23,679 $ 28,771
Manufacturing 16,236 15,329 14,221
-------- -------- --------
$ 38,806 $ 39,008 $ 42,992
-------- -------- --------
Identifiable Assets
Resources $615,730 $370,811 $364,101
Manufacturing 236,700 230,392 230,991
Eliminations (35,888) (15,087) (14,264)
-------- -------- --------
$816,542 $586,116 $580,828
-------- -------- --------
Capital Expenditures
Resources $260,534 $ 7,887 $ 6,495
Manufacturing 24,078 17,728 4,903
-------- -------- --------
$284,612 $ 25,615 $ 11,398
-------- -------- --------
</TABLE>

Operating revenues include both sales to unaffiliated customers and
intersegment sales. Intersegment sales prices are determined quarterly, based
upon estimated market prices and terms in effect at that time and are
eliminated in combination. Intersegment sales from the Resources Segment to
the Manufacturing Segment were $89.7 million, $65.8 million and $58.5 million
for 1993, 1992 and 1991, respectively.

Operating income from the Resources Segment includes land sales of
$7.7 million, $20.3 million and $10.1 million, for 1993, 1992 and 1991,
respectively. Combined export revenues, primarily to Pacific Rim countries, as
a percentage of total revenues were 17 percent, 16 percent, and 20 percent, for
1993, 1992 and 1991, respectively.

As disclosed in Note 3 to Notes to Combined Financial Statements,
during 1993 the Company changed its method for valuing inventories from average
cost to LIFO. The change in accounting method lowered 1993 operating income by
$18.0 million for the Manufacturing Segment and was offset by $10.0 million of
lower intercompany profit accumulating in inventory resulting

38
<PAGE> 40
from the change to LIFO. The cumulative effect of the accounting change and
pro forma effects on prior years' earnings have not been included because such
effects are not reasonably determinable.

12. SUBSEQUENT EVENT

On January 28, 1994, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.38 per Unit for the
fourth quarter of 1993. Total distributions will approximate $18.8 million
(including $3.4 million to the General Partner) and will be paid on March 1,
1994 to Unitholders of record on February 15, 1994.

39
<PAGE> 41

REPORT OF INDEPENDENT ACCOUNTANTS

To the Unitholders and Directors of the General Partner of
Plum Creek Timber Company, L.P.

We have audited the accompanying combined balance sheet of Plum Creek Timber
Company, L.P. as of December 31, 1993 and 1992, and the related combined
statements of income and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Plum Creek Timber
Company, L.P. at December 31, 1993 and 1992, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.

As discussed in Note 3 of the Combined Financial Statements, the Company
changed its method of accounting for inventories effective January 1, 1993.

Coopers & Lybrand
Seattle, Washington
January 28, 1994

40
<PAGE> 42
SUPPLEMENTARY FINANCIAL INFORMATION

Combined Quarterly Information
(Unaudited)
(In Thousands, Except per Unit) (3)

<TABLE>
<CAPTION>
1993(1) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues . . . . . . . $116,422 $117,077 $129,955 $137,552
Operating Income . . . . . . . . 32,701 35,311 29,095 29,450
Net Income . . . . . . . . . . . 23,560 26,264 21,297 20,323
Net Income Allocable
to Unitholders . . . . . . . . 21,889 23,802 18,935 17,981
Net Income per Unit . . . . . . . $ 0.49 $ 0.54 $ 0.44 $ 0.45

1992 1st Qtr 2nd Qtr 3rd Qtr(2) 4th Qtr
- ---- -------- -------- ---------- ---------
Operating Revenues . . . . . . . $ 99,212 $108,644 $136,369 $ 95,679
Operating Income . . . . . . . . 17,787 23,539 40,991 15,465
Net Income . . . . . . . . . . . 9,111 14,624 33,003 7,483
Net Income Allocable
to Unitholders . . . . . . . . 8,391 13,793 31,144 6,133
Net Income per Unit . . . . . . $ 0.19 $ 0.31 $ 0.70 $ 0.14
</TABLE>

(1) Effective January 1, 1993, the Company changed its method of valuing logs,
work-in-process and finished goods inventories from the average cost method of
accounting to the LIFO method. The effect of the change in 1993 was to
decrease earnings by $2.0 million, $1.9 million, $2.1 million and $2.0 million
for the first, second, third and fourth quarters of 1993, respectively, or
$0.05, $0.04, $0.05, and $0.04 per Unit, for the same respective periods. The
cumulative effect of this accounting change and the pro forma effects on prior
years' earnings have not been included because such effects are not reasonably
determinable.

(2) Third Quarter 1992 operations included the sale of 164,000 acres of
timberland in the Gallatin Unit, together with the Belgrade sawmill for $23
million plus the value of inventory. The sale resulted in a net gain of
approximately $15.6 million of which $14.9 million was recognized in the third
quarter.

(3) Per Unit amounts have been restated for the December 6, 1993 three-for-one
Unit split.

41
<PAGE> 43

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

Items 10. and 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
AND EXECUTIVE COMPENSATION, Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT and Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS will be filed by amendment to this Form 10-K on Form 10K/A.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

(1) FINANCIAL STATEMENTS

The following combined financial statements of the Company are
included in Part II, Item 8 of this Form 10-K:

<TABLE>
<S> <C>
Combined Statement of Income . . . . . . . . . . . . . . . . . . . . 24
Combined Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . 25
Combined Statement of Cash Flows . . . . . . . . . . . . . . . . . . 26
Notes to Combined Financial Statements . . . . . . . . . . . . . . . 27
Report of Independent Accountants . . . . . . . . . . . . . . . . . . 40
Supplementary Financial Information . . . . . . . . . . . . . . . . . 41

</TABLE>

(2) FINANCIAL STATEMENT SCHEDULES

All required schedules will be filed by amendment to this Form
10-K on Form 10K/A.

42
<PAGE> 44
(3) LIST OF EXHIBITS

Exhibit 18 - Letter Regarding Change In Accounting Principle

January 28, 1994

Plum Creek Timber Company, L.P.
999 Third Avenue Suite 2300
Seattle, Washington 98104

We are providing this letter to you for inclusion as an exhibit to
your Form 10-K filing pursuant to Item 601 of Regulation S-K.

We have read management's justification for the change in accounting
from the average cost method to the last-in, first-out method of
accounting for the cost of the inventories contained in the Company's
Form 10-K for the year ended December 31, 1993. Based on our reading
of the data and discussion with Company officials of the business
judgment and business planning factors relating to the change, we
believe management's justification to be reasonable. Accordingly, in
reliance on management's determination as regards elements of business
judgement and business planning, we concur that the newly adopted
accounting principle described above is preferable in the Company's
circumstances to the method previously applied.

COOPERS & LYBRAND

All other required exhibits will be filed by amendment to this Form
10-K on Form 10K/A.

43
<PAGE> 45
(B) REPORTS ON FORM 8-K

There was one report filed on Form 8-K for the quarter ended
December 31, 1993.

<TABLE>
<CAPTION>
Item Reported Date of Report
------------- --------------
<S> <C> <C>
(1) Change in accounting method, average cost December 17, 1993
to last-in, first-out ("LIFO")
</TABLE>

44
<PAGE> 46
SIGNATURES

Pursuant to the requirements of Section 13 (or 15(d)) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

PLUM CREEK TIMBER COMPANY, L. P.
----------------------------------------
(Registrant)

By: Plum Creek Management Company, L.P.
as General Partner

BY: RICK R. HOLLEY
----------------------------------------
Rick R. Holley
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, in the capacities and on
the dates indicated, on behalf of, as applicable, Plum Creek Management
Company, L.P., the registrant's general partner, and/or PC Advisory Corp. I,
the general partner of the managing general partner of the registrant's general
partner.

By DAVID D. LELAND Chairman of the Board of January 28, 1994
--------------------------------- Directors, PC Advisory Corp. I

By RICK R. HOLLEY President and Chief Executive January 28, 1994
--------------------------------- Officer, Plum Creek Management
Co., L.P.

By ALLAN F. TRINKWALD Controller and Treasurer, Plum January 28, 1994
--------------------------------- Creek Management Co., L.P.

By JOHN H. SCULLY Director, PC Advisory Corp. I January 28, 1994
---------------------------------

By WILLIAM E. OBERNDORF Director, PC Advisory Corp. I January 28, 1994
---------------------------------
</TABLE>

By WILLIAM J. PATTERSON Director, PC Advisory Corp. I January 28, 1994
---------------------------

By IAN B. DAVIDSON Director, PC Advisory Corp. I January 28, 1994
---------------------------
</TABLE>